Synovus Financial Corp (SNV) 2015 Q1 法說會逐字稿

Welcome to the Synovus first-quarter 2015 earnings conference call.

(Operator Instructions)

Now, I'd like to turn the floor over to your host, Bob May. Sir, the floor is yours.

Thank you. Good morning, everyone. During the call, we will be referencing the slides and the press release that are available within the Investor Relations section of our website at Synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today, with our executive management team available to answer your questions. Before we begin, I will remind you that our comments may include forward-looking statements.

These statements are subject to risks and uncertainties. Actual results could vary materially. The list of these factors that might cause results to differ materially are in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise except as may be required by law.

During the call we will reference non-GAAP financial measures related to the Company's performance. You may see the reconciliation of these measures in the appendix to our presentation. Due to the number of callers, we ask that you to initially limit your time to two questions. If we have more time available after everyone's initial questions, we will reopen the queue for follow-up. Thank you. Now, I'll turn it over to Kessel Stelling.

Thank you, Bob. Good morning. Welcome to all of you on the call. I'll do a brief overview of the quarter as is our normal practice. Then we have a group assembled here to answer your questions. So let me begin by just walking you through the first-quarter highlights. Net income available to common shareholders is $51.4 million or $0.38 per diluted common share. Diluted earnings per share increased 15.2% versus the same quarter a year ago.

Adjusted pre-tax pre-credit costs income was $101 million, an increase of $1.4 million or 1.4% versus the fourth quarter at $4.5 million or 4.7%, versus the first quarter of 2014. Credit quality trends remain favorable during the quarter. We sometimes don't remind you of that. NPAs decreased almost 6% on a sequential quarter basis, while the net charge-off ratio declined 8 basis points to 0.23%.

Total average loans grew $254.1 million or 4.9% annualized versus the fourth-quarter of 2014 and $1.03 billion or 5.1% versus the first quarter of 2014. Total loans grew $8.5 million on a sequential quarter basis and grew 4.7% versus a year ago. Average core deposits, a good story, we'll talk about that later. But average core deposits grew $286.6 million or 5.9% annualized versus the fourth-quarter of 2014 and $529.8 million or 2.7% versus the first quarter of 2014.

On the capital management side, we continue to return capital to shareholders during the quarter acquiring an additional $59.1 million of common stock. Since October of 2014 through April 20, 2015, the Company has repurchased $160 million of common stock reducing our total share by 6 million shares or 4.3%. Book value per common share is $21.69, up 4.9% versus the first quarter of 2014. Our Basel III CET1 ratio is 10.78%.

If you'll flip to slide 4. I'll talk a little bit about loan growth. Again, we do expect loan growth in the mid single-digits for 2015. For the quarter, total loans grew $8.5 million versus the fourth quarter and $947.2 million or 4.7% versus a year ago. Total average loans, again, grew $254.1 million or 4.9% annualized versus the fourth-quarter 2014 and $1.03 billion or 5.1% versus the first quarter of 2014. C&I loans grew $34 million versus the fourth quarter and $346.6 million or 3.5% versus the first quarter of 2014.

We experienced solid growth in our specialty lines, including senior housing, equipment finance, medical office, corporate real estate and consumer mortgages. I'll give you a little bit more color on those results. Our senior housing grew by $71 million. Equipment finance grew by $42 million. Medical office portfolio grew by $41 million. Our corporate real estate grew $34 million. Our consumer mortgage portfolio increased $8 million and is now up 13% versus a year ago.

First quarter also reflected increased production in our government guaranteed lending specialty unit, which consists primarily of SBA lending. Loan production was $21 million for the quarter, up 50% from a year ago. We expect continued growth in SBA lending, which will contribute towards balance sheet and fee income growth through the remainder of the year. The above increases were offset by an $86 million decline in our criticized and classified loans, as well as seasonality, including pay-downs on C&I lines of approximately $60 million.

Total syndications also declined. On the retail side, credit cards and HELOCs declined by $23 million due primarily to the seasonality. From a market perspective, we were pleased to see key strategic markets including Atlanta, Birmingham and Nashville post very solid loan growth. The loan pipeline has continued to increase quarter-over-quarter. We do expect to grow loans in the mid single-digits for the full-year. As I said earlier, we can give more color on that later in the call.

On slide 5, again, talking about average core deposits grew $286.6 million, 5.9%. We were very pleased with the growth in core deposits during the quarter. It's an important component of our strategic focus. Our deposit strategy is comprehensive. It's across all of our business line.

The retail channel has been improved through our investments in technology such as the rollout of our mobile deposit app. Our commercial corporate middle-market lines have improved treasury products including business online banking. Deposit growth was evenly spread across all consumer and small business categories, led by year-over-year growth in average DDAs of 10.8%.

Additionally, we've talked about the overhaul of the retail bank. We're tracking well to our expected 30% increase in retail sales productivity following the launch of our retail strategy in the third quarter of 2014, which as you remember, included improved sales tool and training for our front-line bankers combined with enhanced digital applications for our retail customers. These investments have helped drive a combined 14.9% increase in total loan and deposit sales by units over the first quarter of 2014 even as we've reduced staff. So, great momentum there.

Our average core deposits, again as I said, $286.6 million, 5.9% annualized; $529.8 million or 2.7% versus the first quarter of 2014. Average core deposits, excluding SCM deposits, grew $247.1 million or 5.7% annualized versus the fourth quarter of 2014 and 3.9% versus the first quarter of 2014.

Average non-interest-bearing DDAs were up 4.5% annualized versus the fourth quarter of 2014 and 10.8% versus the first quarter of 2014. Average money markets were up 10.1% annualized versus the fourth quarter of 2014 and 2.9% versus the first quarter of 2014. Total average deposits $21.62 billion increased $279 million or 5.3% annualized versus the fourth quarter of 2014 and $889.8 million or 4.3% versus the first quarter of 2014.

On page 6, some commentary on the margin. As you see, our net interest income decreased $4.2 million versus the fourth-quarter of 2014 due to lower day count. The margin of 3.28% was down 6 basis points from the fourth quarter of 2014. Yield on earning assets was 3.73%, down 5 basis points from the fourth-quarter of 2014. Increased balances at the Fed contributed 3 basis points of the decline. The yield on loans declined 3 basis points to 4.19% versus the fourth quarter of 2014.

Our effective cost of funds was 45 basis points, up 1 basis point from the fourth quarter. We do expect further downward pressure on the net interest margin in the second quarter due to loan yield pressure and the timing of liquidity deployment. I'll call your attention to the sensitivity chart in the upper right side of the page. You will see, again, our estimate if short-term rates were to go up 100 basis points, we would see an increase of 4.6% in net interest income. That's up slightly from the 4.3% of the fourth quarter. A 200 basis point increase would result, we estimate, in a 7.3% increase, up from the 6.7% in the fourth quarter.

On page 7, we talk a little bit about non-interest income. Again, the highlights were mortgage volume and SBA gains. Our first-quarter 2015 adjusted non-interest income was $65.1 million, up 0.9% versus the fourth quarter of 2014 and 3.3% versus the first quarter of 2014. Mortgage banking income was a key driver, increasing $1.6 million or 32.5% versus the fourth quarter of 2014 reflecting an 18.6% increase in production volume. We're currently expecting further increases in mortgage revenue in the second quarter.

Our financial management services unit posted strong results, so we continue to benefit from the ongoing targeted talent acquisition through the franchise. FMS revenues were $20.3 million for the quarter, a 3.5% increase on a linked-quarter basis and a strong 12.3% increase from a year ago, including a 16.7% increase in brokerage revenue. Assets under management now total almost $11 billion, reflecting a 9.4% increase from a year ago.

Our investments in the FMS unit are expected to result in continued growth in customer relationships and revenues. For example, we've significantly improved the scale of resources in our insurance and financial planning capabilities to better position our wealth management teams to meet the needs of our growing affluent customer base. As a result, we're gaining new customers including new customers at our Atlanta-based GLOBALT Investments' money management unit.

Core banking fees were $31.5 million, a decrease of $1.5 million or 4.6% from the fourth quarter of 2014 driven by seasonality. Service charges on deposit accounts were down $1.2 million or 5.7% versus the fourth-quarter 2014. Bank card fees were down $459,000 or 5.4% versus the fourth quarter of 2014. Earlier I mentioned SBA lending. We have an increased focus in this line of business. It also contributed to fee income, with SBA gains of $1.5 million, up $829,000 versus the fourth quarter. We expect an increase in SBA gains for the full year compared to a year ago.

On page 8, we talk about our continued progress and quite frankly, our continued focus on expense management. You'll see the results here, adjusted first-quarter 2015 non-interest expense was $167.4 million, down $5 million or 3% from the fourth quarter of 2014. Employment expense was $96.5 million, up $4.4 million versus the fourth-quarter 2014, primarily due to seasonal effects of employment taxes. Headcount decreased by 42 or 0.9% versus the fourth quarter of 2014 and 177 or 3.8% versus the first quarter of 2014, reflecting this continued implementation of efficiency initiatives.

Our advertising expense was $3.4 million, down $4.7 million from the fourth quarter of 2014. We do expect advertising expense for the remainder of the year to increase from our first-quarter levels based on increased levels of advertising spend related to our branding campaign as well as our product campaigns. Professional fees were $5.6 million, down $2.4 million from the fourth quarter of 2014. Again, the fourth-quarter of 2014 the professional fees reflected elevated attorney fees related to the final resolution of one credit.

FDIC insurance and other regulatory fees was $7 million, down $1.2 million versus the fourth-quarter 2014 primarily due to a decline in the assessment rate. We -- again, as we've said, 2015, we expect adjusted non-interest expense to approximate 2014 levels give or take $675 million reflecting our continued efficiency efforts and in many cases offset by investments in talent and technology.

On slide 9, we will talk about credit quality. Again, sometimes overlooked now as we continue to show improvement; but still good improvement in credit quality. On the first graph, you'll see a reduction in non-performing loans now $194 million or 0.92%, compared to $198 million or 0.94% in the fourth quarter. The year-over-year improvement is 49.5%. So significant progress there.

In the box above the graph, you'll see that we had a meaningful reduction in ORE balances, down 12% versus the fourth-quarter of 2014 and 32% versus the first quarter of 2014. NPAs were down almost 6% to $270 million and 1.28% compared to $287 million and 1.35% in the prior quarter and representing a 46% year-over-year improvement. NPL in-flows dropped significantly down 31% compared to the fourth quarter.

We continue to expect both the NPLs and NPAs to continue to trend downward at a modest pace for the remainder of 2015. I'm sure Kevin Howard will be happy to give more color on that later in the call. The graph on the top right shows that credit costs were $15.7 million, down about $0.75 million from the $16.4 million in the fourth quarter, representing an 11% year-over-year improvement.

The bottom left graph shows that net charge-offs for the first quarter of 2015 were $12 million or 23 basis points, an 8 basis point improvement from last quarter. We believe the charge-offs for the year will remain within or below our stated guidance of 30 to 40 basis points. In the graph on the bottom right shows our past dues greater than 30 days. Past dues remain at low levels, currently 27 basis points. I think it's also worth noting that our 90 day past dues are only 2 basis points.

On page 10, we'll talk a little bit about capital. Let me try and bring you to date. The first-quarter 2015 capital ratios include the impact of $59.1 million in common stock repurchases during the first quarter. The fourth-quarter capital ratios include the impact of $88.1 million of common stock repurchases in the fourth quarter. So let me walk you through those ratios. The first-quarter 2015 common Equity Tier 1 ratio is 10.78%. All capital ratios except TCE or Basel III transitional and the ratios prior to first-quarter 2015 were based on Basel I rules.

The Tier 1 common equity ratio was 10.28% in the fourth quarter of 2014. Tier 1 capital ratio of 10.78% versus 10.86% in the fourth quarter of 2014. Total risk-based capital ratios, 12.64% versus 12.75% in the fourth quarter of 2014. Leverage ratio, 9.65% versus 9.67% in the fourth quarter of 2014. Tangible common equity ratio, 10.43% versus 10.69% in the fourth quarter of 2014. The first quarter of 2015 Basel III common equity Tier 1 ratio is estimated at 10.12% on a fully phased-in business.

Again, to bring you to date on the share repurchase, since October of 2014 through yesterday's date April 20, 2015, we've now repurchased $160 million in common shares or 6 million shares, an average repurchase price of $26.46 reducing the total share count by 4.3%. So we have now $90 million in remaining repurchase authority pursuant to the repurchase program that we again announced last year. So good execution of that plan and a little more to go.

So before we go to questions, just a few comments about our go-forward story. First quarter, I think, was just a very solid quarter as evidenced by our strong operating performance. Positively impacted by continued investments in key strategic initiatives designed to improve the customer experience and a build more profitable, efficient and competitive bank. I think we're clearly demonstrating that we're executing on those initiatives. Our bankers and investment experts are partnering to deepen relationships with current customers, and reach out to prospects with solutions to generate loans, deposit fee, income growth.

At the same time, I know it's on your mind. We're pursuing further expense savings. As we said earlier in the call, are expected to remain flat as we continually invest in talent and growth initiatives. We had good traction with our commercial retail and FMS lines. Our realignment of talent and processes last year has sharpened our focus on meeting the specific needs of our customers wherever they are. The strengthening of our small business lending that we highlighted earlier, during the overview, serves as a great example of this traction.

We expect continued growth in SBA lending this year through aggressive outreach as we launch expanded products like the SBA Cap line and the SBA Export Working Capital programs. Again, that's throughout our five state footprint. We're excited about that. The appeal of our banking model to small and business and middle market customers was affirmed again this year. I hope you all saw Greenwich Associates awarded our Company with 19 customer service excellence and middle market small business banking awards. That's meaningful to us. In many ways, a great recognition of our team members but specifically because they're determined based on feedback from thousands of small and middle-market business representatives across the country and throughout our five state footprint.

Again, we've talked about it, as evidenced by the numbers. We had success in growing our specialty lending lines such as Senior Housing, medical office banking and equipment financing as well as strategic reductions in residential, C&D and land credits. That's resulted in a stronger and more diversified loan portfolio. Despite competitive pressures, we continue to exercise prudent underwriting and build long-term profitable relationships that lead to increase market share, and as previously stated we expect mid single-digit loan growth for the year.

Work continues to improve our retail customers experience and to maximize efficiency in our branch network as more and more customers bank electronically. Again, our current pace of increased sales productivity keeps us on track to achieve our stated 30% target for the year. We'll continue to leverage our FMS and private wealth teams to drive the income and cross sell across our markets. We expect the continued acquisition of more talent, position in strategic markets to grow our customer base.

Now before we take questions, I want to reiterate our confidence in our long-term growth strategy. Like others in the industry we are still facing some headwind with the interest rate environment and slower growth in certain commercial lending segments and certainly stiff competition in certain segments. But we're seeing measurable results from our investments and talent; from our investments in business lines; from our investments in technology.

We believe that our positioning of local leadership and talent in our markets gives us even greater awareness of growth opportunities and greater insight into how we best meet the needs of a variety of customer. So again, pleased with a very solid quarter. I'm excited about the remainder of the year. Operator, now we will move to the question-and-answer portion of the call.

(Operator Instructions)

Kevin Fitzsimmons.

Hovde Group. Kessel, just wondering, looking back at the last several quarters, it looks like this is the first linked quarter in awhile that you guys actually saw a decline in NII and just wondering how you look at that going forward? If that was more of a just seasonal or pickup in competitive yield pressure in this quarter? How you think of it going forward to be able to return to those linked-quarter increases in NII? Thanks.

Yes. Well I think quarter to quarter, Kevin, we can certainly see some fluctuation. As you know, we had big, big boost in loan growth at the end of the fourth quarter, so we reported a very strong number and linked-quarter, not quite so much. We had a strong, strong deposit quarter as we really try to prime that engine because we spoke over the last several quarters about our desire to grow -- fund our loans with core deposit growth. So you ended up with increased balances at the Fed, which don't do a lot from an NII standpoint. But at the end of the day, it was a 2 day shorter quarter. So we do see growth there. We do believe as we continue to again grow our loan book we'll see increases there.

Okay. Great. Just one quick follow-up. In the fee line, you might have set up before and maybe I missed it. You guys had a sizable uptick in mortgage. Just trying to get a sense for how sustainable that is coming into this quarter and second quarter and beyond? Or if that's just really the temporary effect of some refi activity you saw earlier in the quarter? Thanks.

Well, we think the second quarter will be strong as well based on activity today. It's a little harder to see out beyond the remainder of the year. But we are really encouraged by first-quarter performance and believe that the second quarter should be strong as well.

Okay. Thank you.

John Pancari.

Evercore ISI. This is Rahul Patil on behalf of John. You briefly mentioned competition. I just want to get a sense of just regarding the competitive landscape that you're seeing. Are you still seeing the same degree of loan pricing competition in your markets? Or has it become increasingly aggressive?

Yes. I think anybody in the group could answer it. But let me stay with it for a minute. I think it's become increasingly aggressive. In talking to other bankers, but in talking to bankers around our footprint and quite frankly in looking at opportunities that we have here, we have seen really in the last 30 days and Kevin Howard, D. Copeland can look at that too. But we've seen pricing that quite frankly just doesn't make sense for our Company.

In some cases, it was -- involved longtime relationships that literally gave us the last look at an opportunity to do a transaction and in a couple of cases, we passed. Now, we did not lose the relationship but we passed on a transaction because it just did not make sense. If others can figure out how to make money at some of the rates both floating and fixed that we see, then more power to them. Again, we're not losing customers but we've certainly seen some transactions of late that just don't make good economic sense to us. So Kevin do you have anything, I mean you -- to add to that?

No. I agree with that, Kessel. I mean, there's obviously been some pressure, maybe a little bit more on the real estate side that we've seen in the past. But I'll reiterate what you said, we've got to make it make sense to our -- matching up with our risk profile. I agree with that.

Okay. Then you indicated that you expect NIM pressure -- further NIM pressure in 2Q. NIM was down 6 bips this quarter. I'm just trying to get a sense of how should we think about quarterly compression through 2015? Just a follow-up, are you assuming any rate hikes in 2015?

Well, as it relates to NIM pressure, I mean again, we do expect downward pressure in the second quarter of 2015. We hope that will moderate through the back half of the year. But again, we've got increased liquidity, increased balance at the Fed and again, based on where we are today, we do see downward pressure in the second quarter; again, which we hope moderates in the back half of the year. Then you had a second part of the question. That rate hike. That doesn't assume rate hikes just based on our current -- on the current interest rates, that's what we believe.

All right. Thank you.

Jennifer Demba.

SunTrust Robinson Humphrey. My question was just answered actually. Thank you.

Emlen Harmon.

Jefferies. I guess first question for me, you talked about the SBA business. It seemed like there is a real opportunity there. Could you maybe just kind of quantify for us how much of an opportunity that is? Where you're coming from? How you can leverage the existing franchise to grow that business?

Yes. We think it's a great opportunity. I can ask D. Copeland to add some color. But we've seen significant improvement. I believe we ended the last fiscal year at number four in the State of Georgia and might have already moved up. We've had more success in Georgia; we think it's great opportunity throughout our footprint in Florida, Tennessee, Alabama and South Carolina.

I think we've invested in talent throughout that footprint with sales professionals and again covering all five states partnering with our local bankers who are identifying those opportunities. So we do think there is great opportunity. That group has momentum as we've added talent there and as our bankers quite frankly get more familiar with those opportunities. Georgia has been the primary driver but we do think we have opportunities in the other states as well. D., would you like to add anything to that?

Yes. I think the biggest thing is maybe to give you -- we are looking at where hopefully it would be in the neighborhood of doubling the production that we've done in 2014. Part of that would be different things. We would be focused on 7A, which of course helps the drive the fee income the most. 504, we will continue to do. But we're also making investments in a new cap line product. It will be offered through all of our divisions throughout the footprint as well as the export lines that Kessel has talked about as well. So the 7A fees will come in based on completing construction and that normal cycle. But the production, we see very strong throughout the remainder of this year.

Got you. So kind of a $1.5 million I guess revenue run rate this quarter. Should we expect that to grow from here?

Well, the biggest piece is that's going to be on the 7A sales side. So that could go up and down during the quarters as construction is completed during each of the quarters. But I think on a normalized number that would not be far off. But I would also say to make sure that we will increase production and carry loan balances higher on the SBA side as well.

Got you. Okay, thanks. Then just quickly hopping back to expenses, you gave us some decent color on a few lines. The one that was down notably in the quarter, I guess, was the advertising line. Could you just remind us on seasonality there and whether we should expect that to come back for the rest of the year?

It will definitely come back. I don't know that we've guided that specific line. But first quarter was down. As many of you know, we were on air throughout our footprint for the back half of 2014 and really through the college football bowl season with our Bank of Year campaign which has had great success as we attempt to better link our Synovus brand with our individual bank brands.

We pulled back from that little bit in the first quarter to really go back in market and test with customers and with prospects, not just the effectives of the campaign but the linkage between again the Synovus brand and those individual bank brands. So as we get that data, we will again be back on air. So you'll see that line move back up. But again, I would just point to in the context of the overall expense for the year, we expect to remain flat, advertising will come back up.

Got it. Thanks for taking the questions.

Jefferson Harralson.

KBW. I was going to take you to page 10 of the slide deck and just ask you from the capital ratios which one of these do you think is your main constraining ratio on the buyback? Is it -- do you think it's leverage? Or is it the CET with the Basel III? Or are you using that 10.78% from the common equity Tier 1 ratio? Which of the -- as you buyback shares, I guess, which one starts to hit your thresholds first, do you think?

Jefferson, I'll let -- I've give Tommy a minute to think about that. My answer would be, it just depends on the day. I don't mean that to pick on our regulators but when we were laying out our capital plan -- we were trying to do a really good job to show them each of these levels, each of these ratios versus our peers. So with some ratios, we're going to be stronger than peers, some lower. We tend to focus on those where we're higher. They tend to focus on those where we are lower. That's just life.

But I don't know that there's a constraining ratio. We believe we have a well thought out plan. We believe we should continue to execute on the $250 million. As we near completion of that execution, we want to be clear about potential future actions. But, Tommy, if there's a ratio that gives you heartburn, feel free to talk about it.

No. It looks like the simple answer is all but the -- what used to be the Tier 1 capital amount, common equity Tier 1, I think would be the first one that gets focused. But a simple answer is all.

All right. Can you talk about that regulatory DTA this quarter? How much of that came into regulatory capital? How much is left?

I'm sorry. Would you repeat that?

Yes. On the regulatory DTA that's currently disallowed, how much of that came into capital this quarter? How much is left?

The disallowed is $288 million, off of a total (inaudible) It's $288 million is the remaining disallowed piece. It's approximately $600 million is the GAAP number. So the difference in those two gets you to the result.

Okay. Then how much of it came in this quarter? Was it around $60 million? Or was it less than that? I guess, what was that number last quarter?

Just a moment.

[Like] $550 million or something?

Maybe [$5 million] on Tier 1 capital.

Jefferson, we'll follow-up with you and clarify those numbers make sure we got the answers to your question right.

Perfect, thanks. Thanks, guys.

Brad Milsaps.

Sandler O'Neill. Just wanted to follow-up on loan growth. I appreciate the color you guys give. I understand that 1Q is sometimes seasonally slow but with your comments regarding competition, I'm just kind of curious kind of what you guys see changing in the second and third quarters to get you to the 4% to 6% or mid single-digit type guidance you're looking for? Or is it more a result of commitments you made, funding in the summer months? Or are there other areas that you see that should snap back for you as you get into the middle part of the year?

It's a combination. Production in the first quarter was actually pretty strong. I said to our team, we can't overuse the payoff for it but we were impacted by some significant pay-downs. But our pipeline was up. Our production was up. Our activity to date through yesterday just in loan growth to date this quarter, has been significant. Which all again points to the guidance we gave and quite frankly, these investments that we've made in our business units as they mature, we continue to see and as you saw in the fall good growth there. So it's a number of factors.

It is talking with our bankers every day, reviewing their 75% probability pipeline. We've looked at what came in new to the pipeline which was up significantly this quarter and then again just really production outstandings to date this quarter. So it's clearly a little tougher to see out to the third and fourth quarters, but we feel that the mid single-digit is still a good number and hope that second-quarter results will give you more evidence that's a good number for the year.

No, that's helpful. Just to follow-up to Jefferson's questions on the buyback. As you think about your capital planning as it relates to liquidity, is there a level of share price where maybe looking at some of the senior and sub debt that you have out there becomes -- your appetite for maybe prepaying some of that versus a share buyback as it relates to the liquidity have -- becomes more palatable.

We considered to look at all the -- of that category looking for the right opportunity. The issue on the debt is to do a buyout. On some of it you have a big premium to pay and we so far haven't found an inflection point and where that might be, something that we'd like to execute right now. But it's something that we keep our eye on closely.

Tommy, has there been any change now that the rating agencies look at what you have out there? Any update on when that could change?

We stay close with them. We'll be with them soon but it's not something we can control. But it's certainly a factor, how additional outcomes might occur in the way we impact our thoughts about taking some of the debt out.

Great. Thank you guys very much.

Ebrahim Poonawala.

Bank of America Merrill Lynch. I just had one follow-up question. Kessel, if you could sort of remind us on the branch strategy in terms of what we are doing? Did we cut down some of the less productive branches or less profitable branches? What's up or sort of tacked onto that? Where are we in terms of investing in technology, both from a compliance and a front office side? I get your expense outlook, but I'm just wondering underneath that, what are we doing in terms of the investments on the deck and compliance front? An update would be great on that.

Yes. Let me take the branch side first. As you can imagine, as we have rolled out our mobile banking out and other upgrades to technology, we see less and less branch traffic and fewer teller transactions. So we have a very robust teller staffing model that we continue to update. So we look at not just staffing within a branch but then the productivity of the entire branch. So Wayne Akins and his staff -- it's a continuous process. We continue to evaluate the number of branch locations.

I think we've been more aggressive than many in terms of branch closures. But we continue to look at that. As we identify those branches that we don't think will meet our threshold or are trending in a direction that we don't think will meet, then we would certainly give additional color there. So that is an ongoing process that -- in our retail system, which again is another advantage, I think, of the way we've aligned our retail bank now that, that focus can be all day every day on sales and productivity and utilization and rationalization of our branch network. We also again so that continues.

You talked about technology as it relates to compliance. That's a continuous process as well in terms of prioritization of capital outlay or technology for any number of areas. As you again would expect, every area of the bank has their hand raised for more investments, specifically to regulatory and compliance. I think we're well positioned there.

I can only speak to the most recent regulatory exams. There's always a new bell and whistle product that will make somebody's life easier. But again overall, I think we're appropriately invested there. But it is a -- we have a one-year, three-year and five-year technology plan. The priorities change based on the individual business unit needs and just based on the regulatory climate. So again that prioritization process is an ongoing process. But I think we're appropriately invested right now.

Understood. Thanks a lot for taking my question.

Steven Alexopoulos.

JPMorgan. I wanted to start, Kessel, on follow-up on capital. Regarding the $90 million that's left in the share buyback, how should we think about that pace in terms of staying similar? You've been running $75 million or so roughly per quarter average the last few quarters. Or do you slow it now that there's $90 million left?

Well, we've said all along we wanted to be aggressive out of the gate. We did the accelerated share repurchase in the first -- well, in the fourth quarter -- in the first quarter where we announced. Then we've been continuing to buy obviously in the open market. So again, we want to be opportunistic there. But I think to -- the sooner we complete execution the better with a lot of variables. So I don't think there is an intentional slowdown. We want to be smart and be following obviously the share price. But my goal would be to have it completed obviously no later than 12 months announced, but hopefully sooner than that. But there's no target per quarter per se. Again, just we've tried to be very thoughtful but aggressive with the plan.

Okay. I think that answers the question. Then just a follow-up on some of the comments around loan growth. Last year, similar to this year, had a seasonally soft 1Q. Then you saw a real nice ramp in the second quarter. I'm curious, how do you view your positioning at this point compared to where you were last year pipelines et cetera, in terms of that momentum heading into 2Q? Is it about the same as where we were last year?

Yes. This is D., I'll take that. If you go in and look at it, there are a couple of, I guess, a couple of areas that I would comment on to make that point. One would be, where is the pipeline on a go-forward basis? I would say we're slightly ahead of where we were in the same period a year ago on our pipeline, to me which is a positive. In addition to that, the new loan fundings that we had during the first quarter would've been about 17% to 18% higher than the same quarter a year ago.

So that would be positive on the new loan fundings as well. In addition to that, we have utilization on our lines of credit that would be slightly down during the first quarter, which tend to have positive momentum in the, after the first quarter as well. So those would be three of the main things that we look at. Where we're positioned this year versus where we were last year.

Okay. Any change to appetite to add shared national credits at this stage?

I think it's about the same. We mentioned on -- this is Kevin. We mentioned on the last call, I think, last year our growth, it was 25%, 30% of our growth was in that category. It will be much less than that this year, probably about 10% to 15% this year. It was actually down during the first quarter, but we want to stay in that business. We want to -- it's primarily in our footprint. We want to be part of those relationships that are in our footprint.

So we think we will grow some but certainly not at the pace last year. But we think that's going to be offset, our growth this year versus last year in other areas. Our community banks, we expect growth there, more this year than last year. We expect our real estate to be somewhat in line with last year so. Then some of our [lines] are more seasoned now. We've got equipment lending that's now over a year old, a medical office unit that just started. It's coming off of a low base. We expect good expectations there. So those are some of the differentiators in maybe where we were at this time versus last year as well.

Okay. Thanks for the color.

Tyler Stafford.

Stephens. Just a question on your reserve. It continued to come down this quarter. Any updated thoughts on where you see your reserve ratio going forward? Are we at a bottom here? Or could we continue to see it going lower?

This is Kevin. I think it's probably in a place where I think it's in a -- where it flattens out a little bit. We certainly think they'll be different factors as we move farther away from the credit crisis. You don't have the default and loss factors. They are more stabilized now. But we'll also be offset by -- we'll have loan growth we expect that you know mid single-digit loan growth, so we'll have to provide for that. So I think just all in all its net neutral and believe the reserve sort of stays flat during 2015.

Okay, thanks. Then just a follow-up on the expenses. The compensation line item was up pretty sharply this quarter. I know that release called out the seasonal employment taxes that drove that up. Can you quantify the amount of employment taxes that could fall out going forward? Then did the incentive compensation payout hit in 1Q? Or should we see that in 2Q.

The employment taxes were $7.8 million for the first quarter, up 3.7% over a quarter ago. I guess that's a pretty good proxy for what you'll see -- as it stair steps down during the -- throughout the next three quarters. But it doesn't go away. As I mentioned, even in the fourth quarter we still had a $3.7 million level. But it does continue to ramp down throughout.

Okay. Then maybe just one more question on the branch topic. You guys closed 13 back in October. Can you help us understand why we haven't started seeing those expenses fall out of the occupancy line item yet? That was down -- it was essentially flat this quarter. I was just expecting it to come in a little bit.

Yes. There's a lot of moving parts in there. We're fully installed on the benefits of those branches that came out.

Okay. Thanks, guys.

David Bishop.

Drexel Hamilton. On the deposit side, a little bit of an uptick across several categories. Does that reflect any sort of move to maybe extend durations ahead of the Fed moving? Or pre-funding expected loan growth? Just looking for color in terms of what drove that increase in costs this quarter?

That's a factor of it, I guess, but the CDs in particular were out a little longer than on board at this time. But really there was a lot of other moving parts. The desired increase the deposit side. The duration was a factor but really just getting good old-fashioned deposits growing and moving and being able to fund our loans where the key indicator.

Got it. Do you expect continued sort of pressure on deposits costs as we move into the latter half of the year?

We'll watch carefully. We believe the loans are coming on but obviously we outran it on deposits in the first quarter. That's not a bad problem to have. Good liquidity, good fat -- our feet are planted well for the second quarter. We'll continue to be aggressive and grow in deposits. But it will over time will size with the size of the balance sheet.

Got it. Then one follow-up. I noticed about a 46% uptick in foreclosed real estate expenses. Was that just greater activity in terms of clearing the decks on the other real estate owned side?

Yes. I would say that was part of it. This is Kevin. We had actually gone in and reappraised, had fresh appraisals on over 40% of our existing OREs this quarter. I don't think that's something that will re-occur every quarter. It ticked up. That created about $3 million more than probably last quarter. That's primarily where it was. So we expect really that ORE foreclosure cost to kind of work down during the rest of the year.

Great, thank you.

Nancy Bush.

NAB Research. Two questions. Back to the competitive landscape issue. Kessel, the wild card in southeastern banking has always been the community banks. Can you just give us some idea whether your competition is coming from across the board? Is it more aggressive in the community segment, et cetera?

Yes. From my standpoint, it's across the board. The transaction I referred to that we had last look before it went to a competitor was a -- was certainly a larger bank. Again, I think it did not make sense to us so we see those. We saw one recently where we are -- it was kind of a club deal of a bunch of smaller community banks. Again in that case, I'm not sure -- well, I won't comment on who did what, but it was certainly a bunch of banks that wanted a piece of a loan that maybe made sense to them that didn't make sense to us. But I would say the short answer is, it is across the board, but it certainly is coming from some of our larger competitors as well.

Okay. Tommy, I have a question for you. On the -- looking forward to when the Fed begins to raise rates, if that is ever, I see your little diagram there about what happens when short rates go up 100 basis points and 200 basis points, but given that we're looking for increases of 25 basis points to start over some kind of regular basis, how do we think about that? Does the impact of 425 basis points equal the same as 100? Or how does that flow in to net interest income?

Nancy, what you're looking at is really a ramp that's really reflecting a stair step of 25 basis points. In reality, it might be the best scenario because maybe the action that might happen on the liability side might not happen as fast as what happens on the earning assets side. So we think it's a likely outcome, as you said, if it ever happens. But it does reflect the 25 basis point ramp up.

Okay. All right. Thank you.

Christopher Marinac.

FIG Partners in Atlanta. Kessel, Tommy and crew, I was just curious about the loan to deposit ratio again. If you thought that would trend any higher for this year? How that may play out in the next several quarters?

Well, it certainly trended lower this quarter, Chris. We've said on a go-forward basis, we want to fund our loan growth with core deposit growth. So I would say that quarter to quarter there could be slight movements. But we intend for it to stay in general in the range which we see it today. So it was down, I've got the number somewhere, down a few percentage points this quarter. So that's probably a pretty good go-forward level.

Okay. Then Kessel from a big picture standpoint, as you look throughout the wide footprint of Synovus, are there any areas that have been sort of weaker economically in the past couple of quarters and perhaps may have a reversal to the positive this year that you could outline with us?

Well Chris, you know our footprint better than most. So we certainly have some of our more rural markets that have not rebounded. There's just not a lot of growth coming from those markets. So we've asked those bankers to be really smart about growing core deposits and getting very efficient. So that we can deploy those deposits in other markets where we have the opportunity and make sure that we don't put pressure on them to go out of the market or to do anything that would compromise credit quality.

So we still have markets like that. In terms of markets that have come back, you know this because you're there. Atlanta's very, very strong right now. But that's been growing. We've got other markets in Nashville, Charleston, that are really performing well. All of our coastal markets have really come back. Kevin, you may have some color on some that are showing particular lift this year.

But the major markets are, and the more urban markets are certainly stronger for us. But we've got some, again, some good wins going on in some of our smaller markets where we're still moving the needle in market share. We're still getting wins. We're still developing good partnerships with our specialty lines, where bankers in some of those communities are again identifying great opportunities and getting wins. But Kevin, any more market commentary you want to add to that?

The only thing I would add, Kessel, I think you summed it up pretty well, is maybe Florida? Florida's seems -- all of our markets -- our unemployment has a five in front of it, all the primary markets we're in there. That's encouraging. Really good improving credit trends. Their real estate values, I'm not saying they are completely recovered yet. But there's certainly uptick. So -- the job growth there, maybe it's construction service related but that is good for us. We like that business. So I would just add that, Kessel. It seems to be good improving trends there and good fundamental trends and it should give a pretty good landscape for us to grow loans.

Sounds good guys. Thank you for the color here. I appreciate it.

Michael Rose.

Raymond James. My question was actually just asked. Thanks, guys.

All right. Thank you Michael. Operator, I'm assuming there are no other questions now in the queue?

I'm showing no further questions in queue.

Okay. Well, let me wrap it up by thanking everyone for joining the call. I think we had a good solid quarter and showed continued execution of the many strategic initiatives that we put in place last year and in years prior. So we're excited about the rest of this year. It's a big week for our Company as we'll have our Board and shareholders meeting. But I want to just thank all of you on the call for your interest in our Company, for your support of our Company.

For our team members that are always on this call, thanks for what you do every day to make our Company better. Again, to our customers who again are regular attendees of this call, we appreciate your support. We'll do our part to make your customer experience even better. So thank you all. Have a good rest of the day and rest of the week.

Thank you very much, ladies and gentlemen. This concludes today's presentation. You may disconnect your lines. Have a wonderful day. Thank you for your participation.